Suppose you are managing a 100 room hotel that has 5 empty rooms for tonight. The cost of operating your 100 room hotel for a night is $10,000 and the average cost is $100 per room. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $50 for the night, you should
A)rent the room because the marginal benefit exceeds the marginal cost.
B)rent the room because the marginal benefit exceeds the average cost.
C)not rent the room because the marginal benefit is less than the marginal cost.
D)not rent the room because the marginal benefit is less than the average cost.

Question

Suppose you are managing a 100 room hotel that has 5 empty rooms for tonight. The cost of operating your 100 room hotel for a night is $10,000 and the average cost is $100 per room. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $50 for the night, you should
A)​rent the room because the marginal benefit exceeds the marginal cost.
B)​rent the room because the marginal benefit exceeds the average cost.
C)​not rent the room because the marginal benefit is less than the marginal cost.
D)​not rent the room because the marginal benefit is less than the average cost.

Quizplus · Accepted Answer

Since the marginal cost of operating one room for one night is $30 and the customer is willing to pay $50 for the night, the marginal benefit of renting the room is $20 which exceeds the marginal cost. Therefore, it is profitable to rent the room.

Suppose You Are Managing a 100 Room Hotel That Has